FOREIGN TRADE UNIVERSITY FACULTY OF ACCOUNTING AND AUDITING *** GRADUATION THESIS Major Accounting – Auditing with ACCA orientation THE PROCESS OF AUDITING REVENUES SECTION AT FINANCIAL INSTITUTIONS C[.]
FOREIGN TRADE UNIVERSITY FACULTY OF ACCOUNTING AND AUDITING *** GRADUATION THESIS Major: Accounting – Auditing with ACCA orientation THE PROCESS OF AUDITING REVENUES SECTION AT FINANCIAL INSTITUTIONS CONDUCTED BY ERNST & YOUNG VIETNAM TABLE OF CONTENT INTRODUCTION CHAPTER THEORETICAL FRAMEWORK ON AUDIT OF REVENUES IN FINANCIAL STATEMENTS OF FINANCIAL INSTITUTIONS 1.1 Overview of financial statements audit of Financial institutions 1.1.1 Features of financial statements audit of Financial institutions 1.1.2 Objectives of financial statements audit of Financial institutions 1.2 Characteristics of revenues affecting financial audits of Financial institutions .6 1.2.1 Overview of revenues on financial statements .6 1.2.2 Accounting of revenues 11 1.2.3 Internal control over revenues .16 1.2.4 Audit objectives of auditing revenues in financial audits of commercial financial institutions: 18 1.3 Audit of revenues in financial statement audit process 20 1.3.1 Planning the audit 20 1.3.2 Implementing the audit 26 1.3.3 Completing the audit 29 CHAPTER 2: PRACTICE OF AUDIT OF REVENUES IN FINANCIAL INSTITUTION AUDIT CONDUCTED BY ERNST & YOUNG VIETNAM COMPANY LIMITED – AT LMN SECURITIES COMPANY LTD 30 2.1 Overview of Ernst & Young Vietnam Company Limited .30 2.1.1 General introduction of Ernst & Young Vietnam 30 2.1.2 Organizational structure 31 2.2 Overview of audit process in financial institution audits performed by Ernst & Young Vietnam 34 2.2.1 Planning the audit 34 2.2.2 Implementing the audit 37 2.2.3 Completing the audit 38 2.3 Audit of revenues in Financial institution audit performed by Ernst & Young Vietnam in a specific case 40 2.3.1 Audit planning 40 2.3.2 Implementing the audit 51 2.2.3 Complete the audit 81 CHAPTER 3: ASSESSMENTS AND RECOMMENDATIONS TO IMPROVE THE AUDIT OF REVENUES IN FINANCIAL INSTITUTION AUDITS CONDUCTED BY ERNST & YOUNG VIETNAM 83 3.1 Evaluation of revenues audit in financial institutions conducted by Ernst & Young Vietnam .83 3.1.1 Strength 83 3.1.2 Weaknesses .84 3.2 Recommendations .86 CONCLUSION 89 REFERENCE 90 LIST OF ABBREVIATIONS Co Ltd EY Company Limited ISA IT International Standard of Audit Information Technology OM Оvеrаll Mаtеriаlitу PM Performance Materiality SBV VND State Financial institution Vietnam Vietnamese Dong TB Trial Balance GL General Ledger Ernst & Young INTRODUCTION Rationale of thesis In the current integrated economy, Vietnam has become an ideal destination for domestic and foreign investors In addition to the rapidly developing service industries such as banking and finance, the auditing industry is constantly growing and popular in economic life This is also an inevitable trend before the strong development of the economy, as well as the wave of foreign investment and the birth of joint stock companies Therefore, it is undeniable that the audit industry has brought positive contribution to ensuring the reliability of financial statements in enterprises in recent years Financial institutions play a pivotal role in every economy The central government organization regulates banking and non-banking financial institutions In addition, these institutions help bridge the gap between idle savings and investment and its borrowers, i.e., from net savers to net borrowers Auditing is even more essential to a financial institution because they must conduct regular audits to ensure that they’re in compliance with the law and industry standards Financial institutions are required to abide by the regulations set by the law to protect the consumer and manage risk Auditing financial statements is a part of independent audit activities Among the items on the financial statements, the section of revenue and is one of the key points on the income statement of the enterprise, which receives the most attention of the readers of the financial statements This item reflects the business situation of enterprises, helps enterprises to properly determine their responsibilities in fulfilling their obligations to the Governments, and makes reasonable policies to encourage further development Recognizing the significance of auditing a financial institution’s revenue, based on theoretical knowledge acquired at the Foreign Trade University and practical experience gained during an internship, I delved into audit procedures on revenue section and decided to select and study the topic with the subject "The process of auditing Revenues section at financial institutions conducted by Ernst & Young Vietnam" Literature review Research Objectives The purpose of this study is to apply the theoretical underpinnings of the revenue audit process in the audit of financial statements to the current status of the revenue audit process in the financial statement audit performed by EY Vietnam, and then to propose some solutions to improve the revenue audit process, thereby enhancing the audit engagement's effectiveness, contributing to improving the quality of audit services and auditing financial reports at EY Vietnam Research Questions and Hypothesis To clarify the research problem, the thesis poses the following research questions: ✔ Research question first: What are the characteristics of revenues at financial institutions that affect the results of financial statements audit? ✔ The second research question: What audit process are the independent auditing firms applying to audit revenues at financial institutions? ✔ The third research question: What are the advantages and disadvantages of the revenues audit process in the financial institutions' financial statements being applied at independent auditing firms? ✔ Fourth research question: What are the directions and solutions to improve the revenue audit process in financial institutions' financial statements audited by independent auditing firms? Scope The research object of the thesis is the process of auditing revenues at financial institutions by independent auditing companies and is considered on two aspects of theory and practice The thesis focuses on researching the process of auditing revenues at financial institutions within the scope of independent foreigninvested auditing companies and focusing on one of the four largest auditing firms today, Ernst & Young Vietnam Methodology The thesis adopts the approach of materialist dialectics, which combines mathematical and logical procedures with accounting, auditing, and acquired knowledge methods Structure of Thesis The thesis consists of the following three chapters: Chapter 1: Theoretical framework on audit of revenues in financial statements of Financial institutions Chapter 2: Practice of audit of revenues in Financial institution audit conducted by Ernst & Young Vietnam Company Limited – At LMN Securities Company Ltd Chapter 3: Assessments and recommendations to improve the audit of revenues in Financial institution audits conducted by Ernst & Young Vietnam CHAPTER 1: THEORETICAL FRAMEWORK ON AUDIT OF REVENUES IN FINANCIAL STATEMENTS OF FINANCIAL INSTITUTIONS 1.1 Overview of financial statements audit of Financial institutions 1.1.1 Features of financial statements audit of Financial institutions Auditing, when it first appeared, was understood in a general way as an examination of accounting compliance and the truthfulness and reasonableness of financial statements However, along with the development of the market economy, there are many different definitions of audit, and now the most widely used definition is: “Auditing is the process of collecting and evaluating by evidence of information is examined to determine and report on its compliance with established criteria The audit process must be carried out by qualified and independent auditors.” The results of the audit of financial statements are used by the related party including the Board of Management, the State, and third parties, but mainly used by the third parties such as shareholders, investors, financial institutions, etc to make economic decisions 1.1.2 Objectives of financial statements audit of Financial institutions ISA 200, “Objective and General Principles Governing an Audit of Financial Statements” states: The objective of an audit of financial statements is to enable the auditor to express an opinion whether the financial statements are prepared, in all material respects, in accordance with an identified financial reporting framework Specifically, the objective of a financial statement audit is expressed in three aspects: - First, faithful representation: is financial information and accounting documents that accurately reflect the content, nature and value of the transaction economy arises - The second is reasonableness: Financial information and accounting documents that reflect truthfully, necessary and appropriate in space, time and events are recognized by many people - The third is legality: Financial information and accounting documents reflect the law, current accounting standards and regime The objective of the audit of a financial institution’s financial statements is, therefore, to enable the auditor to express an opinion on the financial institution’s financial statements, which are prepared in accordance with an identified financial reporting framework 1.2 Characteristics of revenues affecting financial audits of Financial institutions 1.2.1 Overview of revenues of financial statements 1.2.1.1 Definition - Revenue: Revenue is the total value of economic benefits earned by the enterprise in the accounting period, arising from the enterprise's production, business and service activities, contributing to the increase in equity Revenue includes only the total value of the economic benefits that the enterprise has received or will receive Receipts on behalf of a third party that are not an economic source, not increase the equity of the business, will not be considered as revenue - Financial institutions: Financial institutions are business entities that provide services as intermediaries for different types of financial monetary transactions There are two main types of them which are banking and non-banking Banking institutions includes